AT&T to Cut 3,500 Mostly Management Jobs

Published 7:00 pm, Sunday, January 5, 2003

AT&T Corp. said Monday it will slash 3,500 jobs in its business services division and take $1.5 billion in fourth-quarter charges, mainly to reflect losses on investments in its Latin America subsidiary.

AT&T had disclosed last month that it would be cutting jobs in the business division but had not revealed the number, which represents nearly 5 percent of the phone company's work force. AT&T will take a charge of $240 million, or 20 cents per share, in the fourth quarter to cover the costs associated with the cuts.

Slightly more than half of the employees affected are in management, the company said, and most of the cuts will happen in the first half of this year through a combination of layoffs and voluntary measures. AT&T said the job cuts were made possible by improved operations and automation and were not indicative of the outlook for the business division.

AT&T said it would take a $1.1 billion writedown on its Latin America investments, amounting to about $1.40 per share. AT&T said last year it would cut off its financial support of AT&T Latin America, which provides voice and data services, primarily to businesses.

AT&T signed a tentative agreement with venture capital firm Southern Cross Group to sell the Latin unit for just $1,000, AT&T spokeswoman Eileen Connolly said.

Despite investing $1.1 billion in the Latin unit, AT&T stands to reap a tax benefit on its losses. The 86 million shares of AT&T Latin America, which closed Monday at 24 cents each, would otherwise be valued at more than $20.6 million.

Additionally, AT&T expanded an agreement to offer its customers high-speed Internet service from Covad Communications Co. Because AT&T will be using Covad's digital subscriber line (DSL) network primarily instead of its own, AT&T will take a $200 million charge, about 15 cents per share, to reflect the lower value of its network assets.

Kevin Crull, senior vice president of AT&T's consumer division, said the Covad arrangement would let the Bedminster, N.J.-based company offer DSL in significantly more places while keeping costs down.

As part of the deal, AT&T was granted warrants to purchase up to 1.3 percent of Covad's shares. Santa Clara, Calif.-based Covad went bankrupt in 2001 but emerged the same year.

AT&T shares fell 18 cents, less than 1 percent, to close at $27.48 in trading Monday on the New York Stock Exchange. Covad shares jumped 19 cents, 17.6 percent, to $1.27 in over-the-counter trading.